What is Bitcoin?
You have probably heard of the term Bitcoin, cryptocurrency or crypto-money. Investing in cryptocurrency is a trend these days and many people use cryptocurrency as a form of investing. But what is Bitcoin and how does investing in cryptocurrency work?
If you want to know more about cryptocurrencies, Bitcoin or if you are maybe interested in investing in cryptocurrency yourself, read the article below. We will give you a short explanation about what cryptocurrency and Bitcoin is, how investing in these financial products work and what the advantages of investing in Bitcoin/cryptocurrency are.
What is cryptocurrency?
Cryptocurrency is a digital currency and is also called crypto money. In short, it is digital money which represents a certain value. In addition to Bitcoin, there are various types of cryptocurrencies such as Ethereum, Litecoin, Ripple and many more. These alternative digital currencies are also called altcoins. But the best known – and also oldest – cryptocurrency is still Bitcoin.
How does cryptocurrency work?
Many types of cryptocurrency can be used as a means of payment, just like regular money. More and more large companies and shops are offering this possibility, such as Microsoft, Shopify and also Amazon (through gift cards).
By far the majority of people, however, use crypto money as an investment. By buying and selling Bitcoin or other cryptocurrencies, they try to make profit. You can view it as almost the same as trading in shares. Also, just like ‘normal’ currencies and shares, you can speculate on the price of cryptocurrency and how this will fluctuate.
How many cryptocurrencies are there?
Each cryptocurrency has unique characteristics. In total, there are over two thousand different cryptocurrencies. But what is good to know, if you are thinking of buying cryptocurrency, is that only a few of these cryptocurrencies have a significant market value. Of which Bitcoin, since the inception of the cryptocurrency, is still the largest.
So Bitcoin was the first and is still the largest cryptocurrency. But how do Bitcoins work and when was it created? Learn more about the most famous cryptocurrency below and make sure you have enough knowledge to start investing in Bitcoin.
Who created bitcoin?
After the economical crisis in 2008, distrust of banks increased and the number of online transactions grew. As a result, there was a huge demand for a digital currency. That year, a person by the name of Satoshi Nakamoto published a white paper describing the Bitcoin monetary system. In the papier he describes why he created Bitcoin and how the system works. However, who is behind the alias ‘Satoshi Nakamoto’ is still, to this day, unclear.
What we do know is that Bitcoin is an online peer-to-peer payment system. This means that it is a payment system that exchanges this digital currency directly from person to person. There is no middleman or third party involved in the transaction.
A thing a lot of you are probably wondering about is: how much is Bitcoin worth? This is a hard question to answer in an article, because the current value of Bitcoin fluctuates as we speak. A lot of things can influence the value such as what ‘important’ or ‘famous’ people say about Bitcoin, the confidence people have in the cryptocurrency and what the demand is of the coin.
For example, in 2010 it was for the first time that somebody actually bought something using Bitcoin. It was Laszlo Hanyecz who bought two pizzas for ten thousand Bitcoins. If you would calculate how much this is worth now, he would have bought two pizzas for 300 million euros!
This is a good example of how fast the value of a cryptocurrency can increase, but the opposite is also possible. Another example happened recently, at the end of May 2021. Elon Musk posted a few tweets about how Tesla will not accept Bitcoin as a method of payment, because the currency consumes too much electricity. And what happened only after these few tweets is that the value immediately decreased!
So as you can see, there is no possibility to give an exact Bitcoin price or value. If you want to start buying and selling Bitcoin, the wisest thing to do is to keep an eye on the Bitcoin news. In this way you will be able to predict a little bit what the rate of Bitcoin will do and when to buy or sell your coins.
What are the benefits of Bitcoin?
Bitcoin has certain features that make it a great product to invest in. The digital currency is first of all completely decentralized, there is no intervention of a third party or intermediary needed and, because of the process of mining and staking, the transactions with Bitcoin are very reliable.
First of all, unlike ‘normal’ currencies, Bitcoin is completely decentralised. This means that governments and banks cannot influence the price and value of the currency. They cannot print money to improve the economic state. It is already known how many Bitcoins exist today and how many will be produced in total.
This means that compared to other ‘normal’ currencies that are centralized, with Bitcoin there is no need to trust a certain bank or institution. Nobody has the ‘power’ to manipulate the coin and this makes Bitcoin a relatively ‘fair’ and autonomous currency. For a lot of people this is a big advantage to Bitcoin.
Transactions without an intermediary
In addition, Bitcoin is a peer-to-peer payment system. This eliminates the need for a middleman or third party to make the payment happen, such as a bank or a merchant. Also, Bitcoin transactions are recorded and processed using an online ledger called Blockchain. This automated ledger and the lack of a middleman makes transactions easy, discrete, and less expensive (especially for international payments).
Finally, Bitcoin transactions are extremely secure because of this automated Blockchain system. Since every transaction is checked several times, it is practically impossible to make mistakes or commit fraud.
Transactions can be tracked and verified by participants throughout the chain, a process called mining. Anyone with access to the internet and suitable hardware can participate in mining, and even earn rewards.
This motivation provides sufficient control and creates a transparent and watertight system of transactions. Regardless of whether the transactions are national or international.
In addition to mining Bitcoin, there are also people who do Bitcoin staking in support of the Blockchain network. Staking – as the word might suggest – means that people are tying up crypto-currency in exchange for a reward.
By tying up their currency, they also gain the right to verify and secure transactions in the Blockchain. So, like mining, this helps to keep the Blockchain network fair and prevent fraud.
In short, through financial incentives, Blockchain participants are motivated to help maintain the Blockchain and prevent fraud. Through mining and staking, they receive rewards in exchange for the monitoring and verification of transactions.
How to get bitcoins?
If you want to get started with cryptocurrency after reading this, the question that remains is of course: Where and how do I buy Bitcoins? There are several ways to do this: via a broker, from an exchange or via a peer-to-peer platform
Via a broker
First of all, an easy way to buy Bitcoins is through an online exchange, also called a broker. At an online exchange, it is very easy to make your payment because you can simply pay with iDeal and pay in Euros.
All you need to do is create an account and verify your identity to prevent fraud. You can usually do this easily via the website by, for example, transferring a small one-off amount of one cent or by filling in a code that is sent to you by text message.
From an exchange
You can also buy Bitcoin from an exchange. These are platforms that do not sell Bitcoin themselves but bring together people on the platform who want to buy or sell Bitcoin. So you buy the Bitcoin that other people are selling to/on the platform and you do not buy it from the platform itself.
If you want to buy Bitcoin from an exchange, you should be aware that these exchanges often want to acquire more information from you than a broker if you want to make a transaction. In addition to the standard information, they often ask for a copy of your identity and sometimes an address verification.
Via a peer-to-peer platform
Finally, there are platforms where you can buy Bitcoin directly from another person. These platforms act solely as a marketplace where you can buy Bitcoin from other users. This allows you to buy Bitcoin quite anonymously, but of course it comes with the risk of unreliable sellers.
Something that many people who want to start with investing in cryptocurrency wonder about is, of course, what the expectation of the cryptocurrencies is. Which cryptocurrency is going to rise and which will not be profitable anymore?
You can keep up with the cryptocurrency news, but you can never be sure what the price of Bitcoin or altcoins will do. Nevertheless, the expectation is that investing in cryptocurrencies is still a good move at the moment.
Experts are also positive about Bitcoin’s price prediction. As the supply of new Bitcoin will be cut in half by 2020, a so-called ‘block halving’ or ‘bitcoin halving’, the price will rise with equal demand for the digital currency. Which means Bitcoin will still be a good investment to make.